I move amendment No. 71.
In subsection (10), page 110, to delete " In the case of any such refusal or default " and substitute " To ensure compliance with the provisions of this section " .
SECTION 190.
Is there any connection between amendment No. 71 and amendment No. 72?
There is no direct relationship except that they relate to the same section. This is a drafting amendment of no significance.
It is simply for clarification.
Amendment agreed to.
I move amendment No. 72.
In subsection (11), before paragraph (b), to insert a new paragraph as follows :
" () a person shall be deemed to hold, or to have an interest in or right over, any shares or debentures in which he has an interest jointly or in common with any other person or a limited, reversionary or contingent interest or an interest as the object of a discretionary trust; and ".
A brief on this amendment has also been circulated. It arises out of the Jenkins Report. The object of the amendment is to ensure that securities in which the directors have only a joint or part interest are included in the register. Section 190 provides for a register of shareholdings of directors of the company. It is a new provision which is recommended by our Committee.
May I inquire if the section would be circumvented by naming the nominees ?
That is specifically covered in subsection (1) in line 42 :
" which are held by, or in trust for, him or his spouse or any child of his or of which he or they have any right to become the holder ".
In other words, this applies to all shares of which a director is the beneficial owner?
Or of which he is the beneficial owner of any part.
A rather interesting possibility arises. Supposing that director A is the beneficial holder of a certain number of shares, say, of the qualification shares of director B, but director B is the person who is the actual holder and for director B, according to an earlier section, no notice of trust may be held in the register—and that holds for all registers I take it—now whose name is to be entered as registered ? How does this section apply?
I think there are bound to be little difficulties of that kind arising and it is for that reason that subsection (4) is inserted. It provides that: " The nature and extent of the interest or right in or over any shares or debentures recorded in relation to a director or secretary in the said register shall, if he so requires, be indicated in the register." A director might want to say: " I am not the beneficial owner of these shares; I am holding them for somebody else." He is entitled under subsection (4) to a note of that kind.
: That is all right but what about the provision that a director is a beneficial owner of the shares but not the legal holder?
He has an obligation to disclose to the company and so also has the person in whose name the shares are registered if he is a director or secretary. They must both notify the company.
That is if he has shares he is holding himself. What about shares in trust?
He must also notify.
He does not have to disclose them.
He must. I do not think that what you have in mind about trusts upsets the relevant section, or you will see from subsection (5). This is a supporting register really. The purpose is to show the sum total of a director's shares so that he cannot hide behind nominees.
I have in mind what can happen in the case of private companies. Director A is the beneficial owner of shares which he has allotted to Director B for a nominal consideration. Which of the two must be entered in that case?
If they are both directors particulars in relation to each must be maintained.
You have the directors' register which is a thing in its own right. Director A is registered with his holdings. Director B happens to be the legal holder of, say, his qualification shares, but Director A is the beneficial owner of these same shares, to whose account must the entry go?
It would be on the page relating to each. It is not an unreasonable requirement that that should be so, but if they want to avoid any misunderstanding, then the person who is holding the shares in trust for somebody else can put this note in the register. There could be cases where a director wanted to show that he was not the beneficial owner of shares and that he was merely a nominee or trustee. That is the idea behind subsection (4).
Was it recommended in the Report or has it been copied from elsewhere ?
It is in the law of neighbouring countries.
I think, in principle, it is a good one. The Minister's answer is that it must appear in both.
It is really governed by subsection (1).
There may be rather far-reaching effects incidentally in this. It was customary in a number of Articles of Association that I have seen that the qualification shares of a director shall be the holding in his own right of so many shares. In practice those shares are often allotted to him and he does not hold in his own right, but he has to comply with a re-transfer form. Am I right in that?
Yes. Very often there is a re-transfer blank form.
The fact is that he is not really the beneficial owner of these shares and, in fact, in law and in equity he would be held to be a trustee. Supposing he declares his trust, that he holds them and the nature of the trust in which they are held; supposing that the person from whom he holds them has to declare that trust, does not that bring up a whole lot of Articles of Association ? There may be such directors all round the place for all I know. I have no way of knowing that it is conveyed to them, especially in private companies, to have directors with qualification shares given to them on a re-transfer form. They are really trustees in holding in their own right despite Articles of Association. That was all right so long as the trust was not disclosed. If you bring into the law a disclosure of the trust, notice has to be taken of it. There are directors who are holding from another director. Where they are not holding from another director the difficulty does not arise.
We have not received any complaints about it or any representations.
I am merely raising the possibility. After the very efficient work done by your Department it is very hard for anyone to get an original point. It is possible that one might come across a point like that.
Are we agreed on the general principles of the section ?
I am only raising this from the point of view of avoiding trouble.
The reports of these meetings are public. Somebody will advert to the point if there is anything in it.
Amendment agreed to.
Question proposed: " That Section 190, as amended, stand part of the Bill."
Has the Minister considered including the auditor in this disclosure of the dealings of the company?
As a matter of fact, we went further than the law in other countries in providing for disclosure by the secretary. We did not want to go too far. There is a limit. You could include other officers. In Britain they cover directors only.
There is not the same microscopic examination.
If an official of a company is taking part in any improper dealings in shares the directors can detect it from the register which they examine occasionally but there is nobody to check on the directors and that is why we have this section.
Surely the directors' holdings would be in the register ?
But perhaps in the names of nominees.
Question put and agreed to.